Why crowdfunded smartphones are almost always doomed to failure

The explosive popularity of crowdfunding has resulted in some really cool products, services, and games coming into existence that otherwise might never have gotten out of the planning stage. However, it’s also given a lot of small companies a chance to get people hyped up for niche smartphones. Devices like the the Turing Phone, Saygus V-Squared (above), and Arubixs Portal have experienced endless delays and feature compromises. But many people still want to believe buying a phone made by a tiny company before it even exists is going to result in their dream phone becoming a reality.

The fact of the matter is that building a phone is hard — harder than any of the pre-order campaigns make it seem. All you have to do is follow the updates for some of these projects to see how many landmines they run into. I think outright scams are uncommon; the campaigners believe they can ship these devices, but there might be a touch of the Dunning-Kruger effect too. Let’s talk about why crowdfunded smartphones go off the rails so disastrously.

How much money is enough?

One of the first things people latch onto to express their disbelief and rage when a smartphone project begins to lag is how much money was raised. If project X raised $500,000, shouldn’t that be enough to get these phones out the door? For most of us, that’s a lot of money, but the costs to make a smartphone from scratch are astronomical. It basically always costs more than these companies think. If there isn’t another source of cash, things are going to get messy.

Look at the failed Ubuntu Edge campaign. Canonical is an established organization with experienced leadership and access to plenty of smart people. Everyone’s eyes nearly popped out of their heads when this campaign launched on Indiegogo in 2013 with a $32 million fixed funding goal. That’s many times what the campaigns for other phones have raised, but that’s probably closer to what it would take to build a new premium device and bring it to market (Canonical since settled for some budget phones made by manufacturing partner Bq). It’s astonishing they even made it to $12 million in pledges, but Canonical knew better than to overpromise and build a premium phone without enough cash.

A successful pre-order campaign might rake in a million dollars, sure, but that’s barely enough to pay a small team of engineers to work on a project for a year. Then you’ve got so, so many other costs. More money doesn’t necessarily solve all your problems, either. Campaigners don’t ask for more because they know they won’t get it, and I suppose they think something is better than nothing.

Supply chains are hard

One of the reasons Apple has been able to crank out millions of iPhones every quarter is that it has spent years assembling a supply chain that provides the parts that go into its phones. There’s nothing stopping someone with enough cash from contracting with the same (usually) Chinese factories established OEMs use to assemble their crowdfunded phone, but actually getting the devices built cheaply is tough.

With a million dollars in the bank, you can hire some engineers to design your phone, and you can even get a working prototype, but you might not get much further. Apple and Samsung are selling phones for around $600 full price, which seems like a lot of money, but the only reason that works is the huge scale of their operation. Anything you pay to have manufactured will cost less the more of it you want. Suppliers will lower the cost of components and factories cut you a break on labor if you’re a big customer. Building a few thousand phones as a one-off means your cost per unit will be astronomical without lots of negotiation and hunting around for deals.

I’ve spoken with a few companies that are building consumer products they expect to sell for a few hundred dollars. They regularly talk about the early prototype units costing well over $1,000 each, because they’re essentially custom built. Even the Saygus V-Squared with its $1.3 million campaign only works out to about 2,000 phones. That’s nothing compared with small smartphone OEMs.

The deleterious effects of having poor supply chain management are very real, even for established companies. When HTC’s fortunes began to fade a few years ago, it reportedly had issues getting suppliers to take it seriously. It simply wasn’t shipping enough phones to be a priority. This is widely regarded as one of the reasons its camera sensors have lagged behind in recent years. What kind of problems do you think a completely unknown company with a limited amount of cash is going to go through?

Software and certifications

Android is the natural choice for most crowdfunded smartphones, and with good reason. It’s the most popular computing platform in the world, and that means lots of application support. However, the campaigners rarely talk about all the things that need to happen in order to deliver the Android experience people expect.

Android is open source, so anyone can go to the Android Open Source Project (AOSP) and download the code. This includes all the core stuff like the UI, kernel, wireless stack, and a basic collection of apps. However, Gmail, Maps, Photos, and all the apps in the Play Store aren’t included in open source Android. OEMs need to have their device tested by Google, passing the so-called Compatibility Test Suite (CTS) to make sure the software adheres to established guidelines.

If Google finds something non-conforming, it won’t allow Play Services to be deployed on that device and the OEM will have to fix the issue and resubmit. This adds an additional layer of complexity that some companies simply don’t take into account when raising money. Or you could just drop Android like the Turing Phone (this is not a good idea).

Even before getting to that point, there are innumerable ways building software for a mobile device can get complicated. Unlike desktop operating systems, the OS has to be optimized for a specific piece of hardware. Many of the prototypes shown off at trade shows are running early builds of Android straight out of AOSP that lack promised features and haven’t been optimized for the hardware. It takes a lot of engineering hours to get from this early stage to a version that’s ready for consumers. Even worse, you can’t just change up the hardware as the delays pile up and your phone looks more outdated. If you’re optimizing for a Snapdragon 801, you can’t just switch to a shiny new MediaTek Helio.

When a device is done, it still needs to go through regulatory certification. Agencies like the FCC in the US need to make sure a smartphone doesn’t interfere with other wireless devices. It’s yet another expense that campaigns underestimate.

Release isn’t the end

Even when a phone makes it into the hands of backers, that’s not the end. Or rather, it’s not supposed to be. Because of the difficulties getting hardware and software to play nicely, then getting the device through certification, these devices often launch with older versions of Android. So, updates? Don’t hold your breath.

Again, we’re talking about hundreds or possibly thousands of handsets in a successful pre-order campaign. Employing a large staff of developers to build new versions of Android (i.e. free OTA updates) for that hardware is extremely expensive. It’s more financially viable to simply work on software for new phones that can be sold and bring in money. This is why many smaller OEMs that sell budget phones tend to be poor on updates.

Even if development has gone relatively smoothly, there’s no guarantee the financial incentive will be there to support a phone long-term. For example, the Nextbit Robin (above) might actually be released in the not-too-distant future thanks to a leadership team with lots of experience making smartphones. But is it ever going to get the proper update support?

Backing a phone that doesn’t exist is a huge risk — don’t let any slick Kickstarter page or pretty device render fool you. If you drop hundreds of dollars on one of these devices, you should be comfortable possibly losing that money. Perhaps somewhere down the line a device will show up on your doorstep, but it’s probably not going to be exactly the one you thought you’d get.

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Looking at the number of high-profile failures on Kickstarter on Indiegogo I have serious doubts when it comes to crowdfunding any project that’s supposed to deliver some new hardware. It may be different for projects more focused on software, arts and such but when it comes to electronic hardware in general for every successful project there might as well be hundreds that just burned through the money or best case they delivered some piece of junk that’s nothing like what was promised.

Ekard

It may be to hard for some people but just be a smart backer. Do not back any hardware that supposedly cost the same or less than a competitor already on the market.

For some reason the people behind hardware projects think they need to be price competitive rather than price realistic. Of course, as the article stated, Canonical did a proper campaign and the sticker shock caused them to fail (least that is what I think). I think crowdfunding may have an issue when it comes to hardware. The expectations are set by what the average consumer sees in retail. Until someone figures out how to incorporate the maker movement into a true manufacturing platform, small volume hardware projects will always have a price issue.

This is still the fault of the project managers. They need to properly manage the customers expectations from the get go and set realistic expectations. Of course if they have never tried to manufacture electronics in low volumes, they may not know any better.

close

I am referring to high profile projects. Basically every one of them sells hardware that’s similarly priced with what’s on the market but promises the world on features or hardware that promises the same features as what’s on the market but promises to be a lot cheaper.
Would you back a hypothetical device that costs the same and offers the same as what you already have in stores? I would assume not. So they just over-promise on at least one of those two critical aspects and also under-deliver on at least one.

Pebble is a good success story. Their promises might have looked like far fetched at the time but somehow they delivered.

There’s plenty of projects that scream “scam” but also a lot of plausible ones, like the Zano drone which looked quite promising… until it flopped. I guess I’m missing the “investor” gene. I wanted to back several projects but decided not to every time. Some of them actually delivered, some of them didn’t and some of the hardware I got at the same price commercially a few years later.

P.S. Being a smart backer is just as easy as being a smart investor because they are basically the exact same thing. So I’ll assume you posted this from your $100 million yacht :).

Ekard

Nope, posted from my $10 million yacht… I know, I know, I am such a failure :P

In all seriousness though, for a hardware project like a phone, to succeed at a low goal level (less than $10 Million) they have to have other sources of income. In cases like that, they are using the crowdfunding campaign to generategauge interest.

http://www.sirgcal.com/ SirGCal

I’ve backed quite a few things and only one has failed so far. I think people back dreams instead of possibilities. No doubt so many of them will fall on their faces. Either way, there is always someone who is going to take advantage of the people for the $. But there are also those who are trying to get stuff done as good as possible. In the end only you can decide what you support. Try to make the best/wisest choices. But that ‘thing you always wanted’ might be too much of a dream.

Wussupi83

Great article Ryan, paints a very harsh but realistic truth. This should be a check box “I have read ExtremeTech’s article on crowdfunding a smartphone” before a new phone backer can complete their crowdfunding transaction.

dc

They should just offer the components for the phone and let the end user put it together. That would save money.

Mayoo

Project Ara.

Riely Rumfort

Xiaomi also was working on a modular phone.

Luca Rabissi

Look also into Fairphone 2, which not only is a working modular phone, but it’s an ethical project in which you know where everything comes from, and you make sure miners which extracted the minerals used in the phone and workers who made the components and assembled them are not being treated like slaves. Obviously, fair trade has a cost. If people working on your phone are being paid what they deserve, you get a medium-range phone for the price of a flagship.

Chris Vizzini

Really interesting article, thanks for the informative read! I never really thought about the complicated intricacies that go into smartphone development. It’s very multilayered!

And about updates to the OS. It takes a big companies like Samsung months to release an android update and they have tons of cash to fund development.

Ultimately it’s kind of a sad article. There are many really talented people with amazing ideas that will never see the light of day. Makes me sad for them. Must be incredibly frustrating.

Folatt

“Building a few thousand phones
as a one-off means your cost per unit will be astronomical without lots
of negotiation and hunting around for deals.”

Another reason why the 3D printing revolution will be glorious.

Steve Hayes

Yes the back cover will be cheaper, and maybe the bezel as well. And a couple of brackets on the inside. My guess is save $20K on tooling but add 10c ea unit cost (breakeven 200K units). Unfortunately the display, microphone and speaker, camera and lens, circuitry, display and glass aren’t 3D printable (are they?) so we are still quite some way from glory.

http://cullenjohnson.ca Cullen Johnson

Very insightful article. I do feel sorry for companies in the same situation Saygus is in, but not for Saygus itself. Saygus has outright lied to their customers so many times about release dates and progress too many times. I think they would have been more successful had they been more upfront about the difficulties they were facing and made it clearer that their “preorders” were actually crowdfunding pledges to get the V-squared project STARTED. With they way they handled their problems and the way they treated their customers when their customers started to ask what was going on, the backlash against them is understandable and justified.

Owsley_66

The Ubik Uno hasn’t made it into any of these articles about failed crowdfunded phones, but it will.

The phone is now shipping after a 5 month delay. I haven’t received mine yet but those who have say the phone is crap with light leaks coming out of the back and sim tray. Some people can’t connect the phone to any service provider and others say they get no 4G. The SD card reader fails to recognize cards. Battery drain is bad and some say they have dead pixels on their screens.

But what’s worse is that Ubik Mobile Corp refuses to offer warranty repairs, the ability to return the phones for exchange, or refunds. They are hiding behind the “Reward” part of their Kickstarter campaign. Even though during the campaign they said they would offer a 30-day return policy and a 1-year warranty, they are ignoring all of that now. They just keep saying that “Kickstarter is not a store” and that the phone is not really a phone but “a reward.” https://www.kickstarter.com/projects/ubik1/ubik-uno-solid-performance-smartphone-at-unbeatabl/comments

Glad to see the article. It will save others from making the same mistake that I have made.

The nay-sayers probably brought up similar types of arguments when the Wright brothers were trying to build an airplane or when the early spaceships NASA built didn’t make it into space – people died in unsuccessful launch attempts. We could have stopped “backing/suporting” space exploration.

JUST BECAUSE IT HASN’T BEEN DONE DOESN’T MEAN IT CAN’T BE DONE.

Sure, there is more complexity and risk now in new technology but get over your fears of change, people. And stop projecting your fears out onto others who actually have the bravery and drive to innovate despite all these unknowns and risks. It takes a lot more work and gumption to innovate than it does to sit around writing insulting articles and criticizing others.

And while the supply chain and commercial mfg costs may be high now, there is reward via Intellectual Property rights and knowledge/experience which only the people on the bleeding edge of technology will gain. That includes opportunities to consult/license products and help influence future developments.

So yeah it may be “risky” investment to short-sighted people. But sometimes people back things because they believe the cause is important as the product.

SHAWN K MAXWELL

I second that! We will be your next crowdfunded smartphone.

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